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Chapterwise Theory Accounts by Sunil Panda - 240227 - 171656
Chapterwise Theory Accounts by Sunil Panda - 240227 - 171656
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CHAPTERWISE
MOST IMPORTANT THEORY
GOODWILL VALUATION
XII ACCOUNTANCY
Meaning
Goodwill is the value of the reputation of a firm which enables it to earn higher
profits.
It is a fixed intangible assets not a fictitious assets.
Two Types of goodwill
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CHAPTERWISE
MOST IMPORTANT THEORY
CHANGE IN PSR
XII ACCOUNTANCY
Meaning
When existing partners decide to change their profit sharing ratio
It leads to dissolution of partnership/reconstitution of partnership
In case of any partner(s) gain due to change in profit sharing ratio then
He/she will compensate to sacrificing partner(s)
Sacrificing ratio = old ratio – new ratio
Gaining ratio = new ratio – old ratio
A firm is reconstituted in the event of
1) Admission of a partner
2) Retirement of a partner
3) Death of a partner
4) Change in profit sharing ratio
5) Amalgamation of two or more partnership firm
Treatment of goodwill
Goodwill raised and written off
Treatment of Accumulated Profits & Losses
These items will Distributed in Partners capital A/c and
These items will then Not appear in New Balance sheet
Exceptional rules
These items will Not Distributed in Partners capital A/c and
These items will then appear in New Balance sheet.
Adjustment entry
Not want to disturb the General Reserves.
Revaluation A/c
Alter value/ New value/ Revised value
Will Appear in New Balance sheet
Revaluation Account
Particulars Amount ₹ Particulars Amount ₹
To Increase in liability x By Decrease in liability x
To Decrease in assets x By Increase in assets x
To Unrecorded liability x By Unrecorded assets x
To Revaluation Gain transfer to x By Revaluation Loss transfer to x
Partner’s Capital/ Current A/c Partner’s Capital/ Current A/c
xx xx
Exceptional rules
Alter value/ New value/ Revised value
Will Not Appear in New Balance sheet
Pass an Adjustment Entry
(Old value will continue in the books)
Treatment of Workmen compensation reserve
with Journal Entries
Case 1.
Liabilities Amount Assets Amount
WCR 6,000
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CHAPTERWISE
MOST IMPORTANT THEORY
ADMISSION OF A PARTNER
XII ACCOUNTANCY
According to section 31 of the partnership Act 1932,
A person can be admitted as a partner
i) If it is so agreed in the partnership deed, or
ii) In the absence of the agreement if all the partners agree to
admit a new partner
new partners is admitted for extension of capital he will bring his
share of capital & his share of premium for goodwill
Sacrificing ratio = old ratio – new ratio
(old partners will sacrifice for upcoming partner)
Revaluation Gain will distributed in Old ratio
among Old partners
Journal & Treatment of goodwill
Goodwill raised and written off
Hidden goodwill
Adjustment of Capital
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CHAPTERWISE
MOST IMPORTANT THEORY
RETIREMENT & DEATH OF A
PARTNER
XII ACCOUNTANCY
Retirement of a partner & Death of a partner
A partner may retire form the firm
i) If there is an agreement to that effect, or
ii) If the agreement does not exist then if all the partners agree to his
retirement, or
iii) If the partnership is at will, by giving a notice (written) to the remaining
partners of his decision to retire
A Retiring partner also continues to be liable to third parties for the acts of
the firm even after his retirement until a public notice of his retirement is
given
Sunil Panda
A Retiring partner is entitled to get the following
➢ His share of Capital
➢ His share of Goodwill
➢ His share of profits up to date of retirement
➢ His share of revaluation of Assets and Liabilities
➢ His share of Accumulated profit and losses
➢ Interest @6% p.a. on his Loan (if Deed is silent)
Sunil Panda
The accounting process on the death of a partner is same as that of
retirement of a partner. The difference between the two situation are
i) Retirement of a partner is voluntary in nature and it can be planned, whereas
death of a partner can not be planned.
ii) Payment of the amount due is made to the retiring partner in case of retirement of
a partner, whereas due to amount is paid to the legal heirs of the deceased
partners in case of death of a partner
Deceased share of profit is credited to his A/c only for up to date of death.
His balance in deceased capital A/c is transferred to executor A/c
Sunil Panda
RETIREMENT & DEATH
Journal Entries for Goodwill
Adjustment of Capital
DETAH
Journal Entries for Profits/ Losses
Deceased partners capital Account
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CHAPTERWISE
MOST IMPORTANT THEORY
DISSOLUTION OF FIRM
XII ACCOUNTANCY
Dissolution of a partnership firm
Dissolution of the firm means dissolution of partnership among all the
partners in the firm.
It means end of economic relationship among the partners and business is
closed
Sunil Panda
Mode of dissolution of a firm are
➢ By mutual agreements
➢ Compulsory dissolution
a) when all the partners except one become insolvent
b) when business of the firm becomes unlawful
➢ By Notice
Sunil Panda
➢ On happening of an event
a) on death of a partner
b) on the insolvency of a partner
c) on completion of the venture / objective
d) on the expiry of the period for which the firm was formed
Sunil Panda
➢ Dissolution by Court
a) when a partner has become of unsound mind
b) when a partner permanently incapable of performing his duties
as a partner
c) when a partner is found guilty of misconduct
d) Continuously breach of contract by a partner or partners
e) The business of the firm can’t be carried on except at a loss
f) When a partner other than a partner filing a suit, has transferred
the whole of interest in the firm to a third party
g) Any other reason where court finds dissolution of the firm justified
Sunil Panda
Difference between Dissolution of firm and
Dissolution of partnership
Basis Dissolution of firm Dissolution of partnership
Meaning It means closure of the firm and It means change in business
end of business relationship relationship among the partners
among all the partners the firm continues its business
Business Business of the firm comes to an Business of the firm continues
continuation end
Economic Economic relationship between/ Economic relationship between/
relationship among the partners ends among the partners changes
Closure of Books of accounts have to be Books of accounts need not be
books of A/c closed closed
Sunil Panda
Basis Dissolution of firm Dissolution of partnership
Settlement Assets are sold and liabilities are Assets and liabilities are revalued
of assets and paid off and balance if any is and revaluation gain or loss is
liabilities distributed among partners distributed among partners
Effect Dissolution of firm also means Dissolution of partnership may or
dissolution of partnership may not involve dissolution of the
firm
Court It can be either voluntarily by It always voluntary
intervention the partners or compulsory by
court order
Sunil Panda
➢ Nature of Realisation A/c is nominal account
Sunil Panda
Difference between firm debt and Private debts
Basis Firm debts Private debts
Meaning Liabilities of firm outsides Liabilities of partners (personal)
liabilities All partners are liable jointly Concerned partner is liable
Application Firms properly is applied first for Share of the concerned partner
of firm payment of firm debt in excess of firms property over
property firms debt can be applied for
payment of private debts
Application Excess of partners private Private property is applied first
of private property over his private debts for payment of private debts
property can be applied for payment of then towards firms liability
firm debts
Sunil Panda
Difference between Revaluation A/c and Realisation A/c
Basis Revaluation A/c Realisation A/c
Meaning It shows effect of revaluation of It shows the realization of assets
assets and reassessment of and settlement of liabilities
liabilities
Objective To determine revaluation gain or To determine realization gain or
loss loss
Time It is prepared at the time of It is prepared at the time of
admission, retirement and death dissolution of the firm
Frequency This account may be prepared a This account is prepared only
of number of times during the life once during the life of a firm
preparation of a firm
Sunil Panda
Basis Revaluation A/c Realisation A/c
Effect Here Assets & Liabilities are Here assets are sold & Liabilities
Revalued are paid
Sunil Panda
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CHAPTERWISE
MOST IMPORTANT THEORY
ISSUE OF SHARES
XII ACCOUNTANCY
A company is an artificial person, created by law having separate legal
entity with a perpetual succession and a common seal.
(prof. Haney)
Share is the smallest unit of share capital of a company
Preference shares which do not carry the right to participate in the profit
remaining after equity shareholders have been paid dividend are non
participating preference shares
iii) Convertible and non convertible preference shares
Convertible preference shares carry a right to be converted into equity shares
Non convertible preference shares do not carry a right to be converted into equity
shares
iv) Redeemable and Irredeemable preference shares
Redeemable preference shares are redeemed by the company with in a specific
period not exceeding 20 years from issue
Irredeemable preference shares are those the amount of which can be
returned by the companies to the holders of such shares when the company is
winding up but the companies act 2013 does not permit issue of irredeemable
preference shares
Over subscription of shares :- when number of shares applied are more than
number of shares offered for subscription
Shares can be allotted by any of the following three alternatives
1st alternative :- rejection of excess applicants
2nd alternative :- full allotment
3rd alternative :- pro rata allotment
Difference between preference shares and equity shares
Basis preference shares equity shares
1. Right to Dividend is paid before the Dividend is paid to equity
dividend payment of dividend to shareholders after making payment
equity shareholders to preference shareholders
2. Role of Rate of dividend is fixed Rate of dividend is proposed by the
dividend directors
3. Arrears of If preference share are Dividend is declared every year in
dividend cumulative preference case it is not declared during the
shares arrears of dividend is year it is not accumulated to be paid
paid before dividend is paid in the coming years
on equity shares
Basis preference shares equity shares
4.convertibility It may be converted into It can’t be converted
equity shares
5. Redemption These are redeemed A company may buy back its
equity shares
6.Voting rights They have voting right Equity shares have voting rights in
only in special all the circumstances
circumstances
Basis preference shares equity shares
7. Right of They have no right to They have right to participate in
participation participate in management
management
8. Redemption of On winding up the On winding up equity shares
capital preference share capital is repaid after the
capital is repaid before preference share capital is paid
the equity shares
capital is paid
Issue of Shares Consideration Other than Cash
Share issued to Underwriters and Promoters
FOREFITURE & REISSUE OF SHARES (Pro- rata)
Extract of Company Balance sheet
e) Providing for the premium payable on the redemption of any redeemable preference
shares or of any debentures of the company
➢Private Placement of shares – It means issued shares to a small number of select group
of investor privately to raise capital and not to general public. These investors usually
are bank, mutual funds and insurance companies shares can’t sell minimum for 3 years-
lack in period Sec 42 Companies Act, 2013.
➢Initial Public Offer- Making an offer or inviting the public in general for the first time to
subscribe shares, is known as IPO
➢Interest on call’s in arrears @10% p.a. (as per table F)
➢Interest on call’s in advance @12% p.a. (as per table F)
➢Call’s in arrear is deducted from Subscribed share capital
➢Share Forfeited account is added in subscribed share capital
➢Call’s in advance main head – current liabilities and sub head – other current liabilities
➢Capital reserve and securities premium reserve main head - Shareholder fund and sub
head- reserve and surplus
ESOP/ ESOS
Employees stock option plan/ scheme ESOP/ESOS- it means option granted by the
company to its employees, whole time directors, officers to subscribe the shares at a
price lower than the market price.
It is an option not a obligation.
ESOP is a category of sweat equity
Sweat equity is a wider term than ESOP it includes issue of shares to promoters for
incorporating the company.
Shares under ESOP scheme locked in for minimum period of one year from the date
of allotment.
Sweat equity shares can be issued at discount
ESOP Terms
Grant date
Vesting date
Vesting Period
Exercise Period
Objective of ESOP:-
a) To inspire employees and higher participation
b) Monetary incentive for motivation
c) Longer stability and reduce employees turnover
Surrenders of shares – it is voluntary return of shares by a shareholder for the
purpose of cancellation.
According to section 39(2) of companies act,2013 minimum application money
should be 5% of the face value of share or such other percentage or amount as
may be prescribed by SEBI
SEBI prescribes that application money should not be less than 25% of the issue
price
A period of one month must exist between two calls
Amount of one call should not be more than 25% of the face value of shares
Notice of 14 days should be given to the shareholders to pay the amount
The company before forfeiture must first give clear 14 day’s notice to the
defaulting shareholders that he shall pay the due amount along with the interest
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CHAPTERWISE
MOST IMPORTANT THEORY
ISSUE OF DEBENTURES
XII ACCOUNTANCY
Meaning
Debenture is a written instrument or Document issued by the company
acknowledging the borrowing, bearing fixed rate of interest
Sunil Panda
Interest on debentures is a charge against profit
Debenture holders do’ not have voting rights
Debenture can be issued at par, premium, discount
Interest on debentures is always calculated on the face value of debentures
Debenture may be issued for long-term or short-term period. Thus, they are shown
as either long-term borrowings under the head non-current liabilities or short-term
borrowing under the head of current liabilities.
If question is silent we assume debenture are long term borrowings
Sunil Panda
Issue of Debenture as collateral security
When company issue debentures as an additional security with principal security to
obtain a loan it is known as issue of debentures as collateral security
Sunil Panda
Types of Debentures
1. From security point of view
a) Secured debentures:- these are those debentures which are
secured by either fixed or floating charge on the assets of
the company
b) Unsecured debentures:- these are those debentures that
are not secured by any charge on assets of the company
Sunil Panda
• A charge on fixed assets is called fixed charge
• A charge on stock/current assets is called floating charge
Sunil Panda
3. From Registration point of view :-
a) Registered debentures :- these are the debenture that are registered in
the company records in the name of the holders
b) Bearer debentures :- these are the debentures that are not registered in
the record of the company in the name of the holder. These are
transferable by more delivery
Sunil Panda
4. From convertibility point of view:-
a) Convertible debentures :- these are the debentures that are convertible
into shares. If a part of the debentures amount is convertible into equity
shares they are known as partly convertible. Debentures if full amount of
debentures is convertible into equity shares they are known as fully
convertible debentures
b) Non convertible debentures:- these are those debentures that are not
convertible into shares
Sunil Panda
In case of issue of debentures consideration other than cash
If Purchase consideration > net assets (Goodwill A/c)
If purchase consideration <net assets (Capital reserve A/c)
Sunil Panda
Premium on redemption of debentures is a capital loss and it is shown as main
head non-current liabilities and sub-head other long-term liabilities
It is a personal A/c in traditional approach and liability A/c in modern approach
And the loss on issue of debentures A/c is a capital loss which is written off in the
year it is incurred from
i) Securities premium reserve
ii) Statement of profit and loss
Sunil Panda
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CHAPTERWISE
MOST IMPORTANT THEORY
FINANCIAL STATEMENTS
OF A COMPANY
XII ACCOUNTANCY
Financial statements
The financial statement are a summary of accounts of a business
enterprise.
Like Balance sheet, income statement, cash flow statement and Notes
to accounts.
Objective of financial statements
a) To provide financial data on economic resources and obligations of an enterprise
b) To show implications of operating profit on the financial position of an enterprise
c) To provide information about cash flow to investors and creditors for assessing,
comparing and evaluating, potential cash flow in terms of amount
d) To provide sufficient and reliable information to various parties interested in
financial statements
e) To present a true and fair view of the business
f) To assess effectiveness of management towards utilization of resources of business
g) To provide information about activities of business affecting the society
h) To disclose accounting policies followed in the accounting process for the better
understanding of financial statement
Format of Balance sheet prescribed in Part I of Schedule III of
the companies Act, 2013, is as follows.
Particulars Note no. CY PY
I Equity and Liabilities
1. Shareholder’s fund
(a) Share capital
(b) Reserve and surplus
(C) Money received against share warrants
2. Share applications money pending allotment
3. Non-Current liabilities
(a) Long-term borrowings
(b) Deferred Tax liabilities (net)
(c) Other long-term liabilities
(d) Long term Provision
4. Current liabilities
(a) Short term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short term provision
Total
Particulars Note no. CY PY
II Assets
1. Non-Current Assets
(a) Property, Plant and Equipments and intangible assets
(i) Property, Plant and Equipments
(ii) Intangible Assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current Investments
(c) Deferred tax assets (net)
(d) Long term loans and advance
(e) Other non-current assets
2. Current Assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and Cash equivalents
(e) Short-term loans and advances
(f) Other current assets
Operating cycle
Heading & Sub headings
Items Main head Sub head
Calls in Arrears Shareholders fund By way of deduction from
subscribed share capital.
Share forfeited A/c Shareholders fund By way of addition in
subscribed share capital
Calls in advance Current liabilities Other current liabilities
Unclaimed dividend Current liabilities Other current liabilities
% Debenture Non current liabilities Long term borrowings
General reserve, Securities Shareholders fund Reserve and surplus
premium reserve ,DRR/CR,
Statement of P&l (CR)
items Main head Sub head
Statement of P&l Dr. Shareholders fund Reserve & surplus by way
of deduction
Public deposits/ Bonds Non current liability Long term borrowings
Debtors & Bill receivables Current Assets Trade receivable
Creditor & Bill payable Current liability Trade payable
Provision for tax Current liability Short term provision
Bank overdraft Current liability Short term borrowings
Provision for doubtful Current assets By way of deduction from
debt trade receivable
1. Historical records
2. Affected by estimates
3. Different accounting practices
4. Qualitative elements are ignored
5. Historical cost concept
Users of Accounting Information
INTERNAL USERS EXTERNAL USERS
Management Shareholders
Employees
Financial Analysist
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CHAPTERWISE
MOST IMPORTANT THEORY
ANALYSIS OF FINANCIAL
STATEMENTS
OF A COMPANY
XII ACCOUNTANCY
Analysis of financial statements is a systematic process of analysing the
financial information in the financial statements to understand and take
economic decisions.
Tools of analysis of Financial statement
• Comparative and common size statements
• Ratios analysis
• Cash flow statement
Types of financial statement analysis
a) External analysis:- external analysis is conducted by those who do not have
access to the detailed records of an enterprise and therefore have to
depend on published account i.e., statement of profit and loss, balance
sheet, directors and auditors reports. Such type of analysis is made by
investors, lenders, creditors, government agencies and research scholars
d) Vertical ( or static) analysis :- This analysis is made to review and analyse the
financial statements of one year only. It is a cross-sectional analysis. Ratio
analysis of the financial statement relating to a particular accounting year is an
example of this type of analysis. Such an anlysis is useful in comparing the
performance of several companies of the same type or divisions or departments
in one enterprise
e) Intra-firm comparison and inter-firm comparison :-
(i) Intra firm comparison : A comparison of financial variables of an enterprise
over a period of time is known as intra firm comparison. It is also called time
series analysis or trend analysis
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CHAPTERWISE
MOST IMPORTANT THEORY
COMPARATIVE & COMMON
SIZE STATEMENT
XII ACCOUNTANCY
Comparative statements
Intra-firm & inter-firm comparison
Common size statements
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CHAPTERWISE
MOST IMPORTANT THEORY
ACCOUNTIG RATIOS
XII ACCOUNTANCY
Ratio :- Ratio is an arithmetical expression of relationship between
two interdependent or related item. Ratio when calculated on the
basis of accounting information are called Accounting Ratio.
Accounting ratio can be expressed by any of the following
manner:
1. Pure ratio
2. Percentage
3. Time
4. Fraction
Objective of Ratio Analysis :- Ratio Analysis serves the purpose of
various users who are interested in the financial statements. It
simplifies, Summarises and systematics the figures in the financial
statements
1) To simplify the accounting information
2) To determine liquidity, i.e. short term solvency ( ability of the enterprise to meet its
short term financial obligation) and long term solvency (ability of the enterprise to
pay its long term liabilities) of the business
3) To asses the operating efficiency of the business
4) To Analyse the profitability of the business
5) To help in comparative analysis, i.e. inter-firm and intra-firm comparisons
Advantage of Ratio Analysis
b) Solvency ratio :- These ratio are calculated to assess long term financial
position of the enterprise solvency means ability of the enterprise to meet its
long term financial obligation i.e. liabilities. Important solvency ratio are (i) debt
to equity ratio, (ii) total assets to debt ratio, (iii) proprietary ratio, and (iv) interest
coverage ratio
c) Activity Ratio or Turnover ratios:- These ratio show how efficiently a company is
using its resources. Important activity ratio are
(i) inventory turnover ratio, (ii) trade receivables turnover ratio,
(iii) trade payables turnover ratio, and (iv) working capital turnover ratio
Liquidity of business refers to the firm ability to meet its current obligation i.e.
short term financial liabilities
Inventories ( excluding loose tools and stores and spare) FOR CALCULATION OF
CURRENT RATIO
Current ratio Ideal ratio is 2:1
If the current ratio is 2 or more than 2, it means the firm is adequately liquid and
shall be able to meet its current financial obligation but if the current ratio is less
than 2 it means the firm may face difficulty in meeting its current financial
obligation. High current ratio means better liquidity position. But a very high
current ratio means poor management of funds.
Liquid ratio or quick ratio or acid test ratio :-
Ideal ratio :- Quick ratio of 1:1 is an accepted standard, since for every rupee of
current liabilities, there is a rupee of quick assets
In case of liquid ratio is less than 1 it means that current liabilities are more
than its quick assets. As a result the enterprise may not be able to meet its
short term financial obligation i.e. current liabilities,
if they fall due for payment on that date
Debt to equity ratio
Ideal ratio 2:1
A high debt to equity ratio means that the enterprise is depending more on
borrowings or external debts in comparison to shareholders to shareholders
fund. In effect lenders are at higher risks and have lower safety cover. On the
other hand low debt to equity ratio means that the enterprise is depending
more on share holders funds than external equities. In effect lenders are at a
lower risk and have higher safety cover
Total assets to debt ratio
A high ratio means higher safety cover for lenders to the business. On
the other hand a low ratio means lower safety for lenders as the
business depends largely on outside loans for existence. In other words
investment by the proprietor is low
Debt to Capital Employed Ratio
This ratio established a relationship between Long-term Debt and Capital Employed
or Net Assets. Capital Employed is total of Long-term funds which are shareholder’s
funds and Long-term Debt. It is computed as follows:
Debt to Capital Employed Ratio = Long-term Debt/Capital Employed (or net Assets))
Significance: The ratio shows the amount of long-term debts in capital employed.
Low ratio means more security to lenders and high ratio means lesser security to
lenders. High ratio helps the management in trading on equity.
Proprietary ratio:-
The objective of computing this ratio is to measure the proportion of total
assets financed by proprietors funds.
A high proprietary ratio means adequate safety for unsecured lenders and
creditors. But a very high ratio means improper mix of proprietors funds and
loan funds, which results in lower return on investment
A lower proprietary ratio indicates greater risk to unsecured lenders and
creditors
Interest coverage ratio
Objective and significance
The ratio is important and meaningful to debenture holders and lenders of
long term funds. The objective of calculating this ratio is to determine the
amount of profit available to cover interest on long term debt.
A high ratio is considered better for the lenders as it shows higher profit
margin to meet interest cost
Activity ratio :-
A high ratio shows that more sales are being produced by a rupee of
investment in inventories. A very high inventory turnover ratio shows
overtrading and it may result in working capital shortage
A low inventory turnover ratio means inefficient use of investment in
inventory, over-investment in stocks.
Trade receivables turnover ratio
This ratio indicates the number of times trade receivables are turned over in
a year in relation to credit sales. It show how quickly trade receivables are
converted into cash and cash equivalents and thus show the efficiency in
collection of amount due against trade receivables. A high ratio is better
since it show that debts are collected more promptly
A lower ratio shows inefficiency in collection or increased credit period
Debt collection period or Average collection period
It provide an approximation of the average time that it takes to collect debtors
Trade payables turnover ratio:-
The objective of calculating trade payables turnover ratio is to determine
the efficiency with which the trade payables are managed and paid.
High turnover ratio or shorter payment period shows less credit period
being available or early payments being made. A high ratio also indicates
that the enterprise is not availing full credit period. A low ratio or longer
payment period indicates that creditors are not paid in time or increased
credit period
Working capital turnover ratio
The objective of computing the ratio is to ascertain whether or not working
capital has been effectively used in generating revenue.
A high ratio show efficient use of working capital, whereas, low ratio show its
inefficient use.
Working capital turnover ratio is considered to be a better measure than the
inventory turnover ratio since it shows the efficiency or inefficiency in the use of
the working capital
Fixed Assets Turnover Ratio
Fixed Assets Turnover Ratio is the ratio that analyse the relationship between Net Fixed
Assets and Revenue from Operations, i.e. the number of times net fixed assets are
used or turned around for earning revenue from operations during the year. It is
computed as follow:
Fixed Assets Turnover Ratio = Revenue from operation/Fixed Asset (net)
Revenue from operation means Gross Revenue less Reversals, if any in terms of sales, it
means Gross sale less sale return.
Fixed assets (net) means Fixed asset cost-depreciation.
Significance- It shows the efficiency with which the fixed assets have been used in
earning revenue from operations during the year. It should be noted that fixed assets
are held by an enterprise to enhance its earning capacity. A high ratio means efficient
utilisation of fixed asset while low ratio means inefficient utilisation of fixed assets.
Net Assets Turnover Ratio
Net assets (also known as capital employed turnover ratio) Turnover ratio is the ratio that
analyse the relationship between Net Assets or Capital employed and Revenue from
operations. It shows the number of times net assets or capital employed is used or turned
around in earning revenue from operations during the year. Stating it differently it is the
relationship between revenue from operations and net assets (capital employed) in the
business.
Net Assets or Capital Employed Turnover Ratio = Revenue from operations/ Capital employed
Net Assets means Total Assets less Current liabilities = is capital employed
Significance – Higher Turnover ratio means better and efficient utilisation of net assets or
capital employed and thus higher profitability and liquidity
Gross profit ratio
The main objective of computing gross profit ratio is to determine the
efficiency with which production and / or purchase operation and selling
operation are carried on.
Higher gross profit ratio is better as it leaves higher margin to meet
operating expense and creation of reserve
Operating ratio
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CHAPTERWISE
MOST IMPORTANT THEORY
CASH FLOW STATEMENT
XII ACCOUNTANCY
Meaning
It is a statement that shows the cash flows, i.e. inflow and outflow
of cash and cash equivalents during the accounting period from
operating, investing and financing activities
Sunil Panda
Cash inflow and Outflow
Classifying in Which Activities ?
TREATMENT OF SOME SPECIAL ITEMS IN CASH FLOW STATEMENT
Financial and Non Financial Companies
Importance of cash flow statement
• It helps in ascertaining cash flow from operating, investing &
financing activities
• It helps management in planning
• It helps in maintenance of liquidity & determine solvency
• It helps in efficient cash management
• Helps in comparison
• Investment & dividend decision are also taken by the finance
manager by help of cash flow statement
Sunil Panda
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